Publisher’s viewpoint

The Barnes Buchanan Conference held the first week of February gave a pretty solid snapshot into the financial affairs of the reseller community, in particular the recurring monthly revenue (RMR) market, while taking a good hard look at what the lending and banking community is up to and the impact it is having on our industry now and going forward. There were days of discussions, panels of speakers and highly anticipated annual presentations. Bill Polk, managing director of Security at CapitalSource, Clayton, Mo., took an in-depth look at the capital markets and Michael Barnes, a partner at Barnes Associates in St. Louis, Mo., looked at the rise or fall of the RMR market over the past year comparing it to the last ten years.

As to the capital markets, there is money available but lenders are as cautious as they have ever been about lending and any dollars out have to ensure that they will produce X percent of growth going forward or there simply is no deal. Lenders are only investing in people who have excellent business operating experience, sound accounting practices and a solid track record of success; and even then it's not easy to get funding--as many of you may know.

Bill Polk said, "Washington is the boss today (in the banking industry) with the government heavily invested in banks, housing and the auto industry. The money lent to AIG is gone" and the rest, well, we're all waiting to see what will happen here, if these debts will be paid back by those who got the funding or by the tax payers. Further, the banks expect to see some changes in regulations which are adding to their tentative lending posture realizing lending rules are changing.

Bill noted that a good part of this industry's revenue comes from state and local government spending or contracts with town offices, court houses, police departments, federal buildings, schools, etc. and that government revenues have been highly impacted by this economic crash, causing deep government spending cuts at this local level with no short-term resolution insight to these cuts. Bill went on to state that in a study of global leaders with regards to their perceived risks, 92 precent said that security issues were their greatest threat. Meaning that spending levels for security are likely to improve as budgets improve and in fact, security will see improvements before other industries do.

Mike Barnes, in his annual state of the industry address, reported that it appeared that alarm industry deals were down eight percent in 2009 and values were down about 25 percent. On the other hand, there were alarm companies who saw good growth! Companies anticipated that attrition would be an issue, so they cut operating costs, froze salaries and then simply didn't see the expected attrition. My summary of Mike's overall view of the market was--sales and installations were down; billable service as a percentage of RMR was flat; and margins on monitoring and services were up. Gross attrition rates were up slightly and the RMR creation multiple were up so net growth was down. The "total security market's" growth was reportedly down eight percent. (Although Barnes thought the monitoring and service business might have been up by three percent). And that RMR growth for larger companies was perhaps at eight percent, middle market companies at four percent and smaller companies at one to two percent. And if my memory serves me well, I think he hesitantly predicted last year that we would see four percent growth for '09. He was reticent to say what to expect for 2010 but if I remember correctly, I think he said...the same as '09.